Virginia Reacts
Business prepares for war after the terrorist attacks. Mixed impact on state economy; defense, security stressed

Related Story: When it comes down to "flight or fight!"

by Peter Galuszka

At 7 a.m. on Sept. 11, Mike Scanlon was asleep in a hotel bed in San Diego. The senior vice president of marketing and communications for Alexandria-based Metrocall was on the West Coast for a trade show - one of two exhibitions of interest that day to his firm, the second-largest provider of wireless pagers in the nation. Steven D. "Jake" Jacoby, the company's chief operating officer, was going to cover the other show in Los Angeles. The two men had been close colleagues for 20 years. "I can't tell you how many times I sat next to him on an airplane," says Scanlon who left Dulles airport for the coast the night before. Jacoby was due to leave from Dulles to Los Angeles on American Flight 77 that morning.

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As Scanlon slept peacefully, the pager on his bed stand suddenly blared. "All hell had broken loose," he says. He tried to call his office, but the lines were jammed. Soon, he learned the stunning news. Terrorists had hijacked Jacoby's airliner and slammed it into the southwest side of the Pentagon. All on board, including Jacoby, had died. Metrocall officials, using their name-brand pagers, frantically tried to account for the rest of their executive staff.

Today, Scanlon and the rest of Metrocall are struggling to come to grips with a horrific tragedy that has caused the worst civilian casualties ever on U.S. soil. The kamikaze-style crashes of three jetliners into the World Trade Center and the Pentagon, a ruthless and sophisticated plot by the Islamic terrorist group Al Qaeda, has stunned the U.S. economy and corporations throughout Virginia. For Scanlon, a chilling thought is that he and Jacoby easily could have switched planes. Now, he is struggling with the loss of a friend and golfing buddy, a husband and father of three. All of Metrocall is in shock, he says. "It is the loss of a key, key leader."

Indeed, like their counterparts in other states, Virginia executives are suddenly dealing with what President George W. Bush says is a war, but is unlike any other. As U.S. warplanes pound targets in Afghanistan, suspected of harboring terrorists associated with Osama bin Laden, Old Dominion corporate officials ponder what just weeks ago had been unthinkable. Are their offices safe? Are their employees protected? Will fuel-laden commercial jets again plunge from the sky? Will deadly microbes or molecules slip through their air-conditioning systems? Should they suspend all corporate travel? Should they install a backup for all information technology systems (see story, page 16)?

Just as the state and nation seemed to be struggling out of an economic downturn, the attacks of Sept. 11 have cast an enormous pall over all business. A recession seems certain with the most optimistic estimates of a recovery coming in next year's second quarter. Gov. Jim Gilmore, whose early estimate put state economic losses at $1.2 billion, has appointed a 22-member Virginia Preparedness and Security Panel to report by Nov. 30 on the effects of the attacks on Virginia and what Virginia can do to shore up its security. One key element: divining what the outcomes on the state's economy and tax coffers will be. Gilmore reported on Oct. 11 that some 35,000 Virginians have lost their jobs since the attacks. He is upping unemployment benefits and releasing state construction funds to boost the economy. In addition, Gilmore is seeking $3 billion in federal emergency aid to blunt the economic devastation.

In Virginia, the effects on business should prove to be mixed. Fear of flying, for example, is pushing struggling, Arlington-based air carrier U.S. Airways closer to bankruptcy, but at the same time it is boosting private airplane charters. Consumers are less inclined to spend precious dollars for luxuries such as the DVD players sold by Richmond-based Circuit City and others. Unknown is what may happen to the state's $12.5 billion tourism industry. It took a short-term hit as companies cut conferences and families delayed vacations, but it may get a mid-term boost since the state's big attractions such as Colonial Williamsburg are a short drive instead of an airplane flight from large population and corporate centers.

The attacks are certain to have a major impact on the state's massive defense sector. Yet even here, repercussions are mixed. As sailors, airmen, soldiers and Marines based in Virginia deploy overseas, there is bound to be a big dip in the military-dependent economy of Hampton Roads. When the nuclear aircraft carrier Theodore Roosevelt sailed for the eastern Mediterranean in mid-September, it took nearly 6,000 spenders out of the Norfolk economy. Some of their relatives are likely to return to homes in Iowa or California during the deployment, further sapping the local economy. But defense industries, many with Virginia operations, should get a long-term boost. For example, stock prices for Northrup Grumman, a defense aerospace company, have soared so much that it may emerge as the winning suitor and beat out General Dynamics in its quest for Newport News Shipbuilding, whose aircraft carriers are leading the counterattack against the terrorists.

Other sectors of the Old Dominion's economy are likewise getting an unexpected benefit from the terrible attack. One reason is Virginia's proximity to Washington. Many officials of the CIA, FBI and armed forces continue to live in Virginia after they retire. Some work in defense-related firms or for the state's 1,200 security companies that are now doing a land-office business. "The calls from corporate clients have increased enormously since the events," says Gordon McGinley, a vice president of Fairfax-based Corporate Risk International who used to head the FBI's office in Mexico City. Just as during the Iranian crisis 20 years ago, coal in Southwest Virginia is being propped up since prices have nearly doubled from what they were last year. And Virginia's telecommunication sector, which had taken its lumps in the recent high-tech downturn, is back in vogue, especially for wireless communications. Metrocall, for instance, finds that many companies want its wireless pagers because of fears that land lines might go down if there's another terrorist attack.

The first comprehensive report on what Virginians should do to protect themselves will be part of the report due by month's end by Gilmore's new commission. It will give the out-going governor time to make recommendations to the next session of the General Assembly in January. M. Wayne Huggins, head of the panel and a former chief of the Virginia State Police, says his group "will assess the current state of Virginia's security threat and its state of readiness."

Huggins, now president of Omniplex International, a Chantilly-based security firm and subsidiary of Omniplex World Services, says the commission is focusing on the physical security of government and corporate buildings, the awareness level of the state and private sector and contingency planning. For instance, he says commission member Dr. Joseph Ornato, head of the emergency medicine department at Virginia Commonwealth University's Medical College of Virginia, is surveying health facilities statewide to see if they have the patient beds and blood supplies to handle a World Trade Center-style disaster.

At the moment, companies are scrambling to add surveillance cameras, backup their data and secure the entries to their offices or factories. Dominion Generation, which operates three nuclear plants, including North Anna and Surry in Virginia, has toughened its security. Utility officials now admit, contrary to company statements over the past 30 years, that nuclear plants might not withstand a direct hit from aircraft similar to Boeing 757s or 767s - the same ones used to damage the Pentagon and destroy the World Trade Center. Railroads Norfolk Southern and CSX are trying to ensure that hazardous rail cargoes can't be used as weapons. Columbia Gas of Virginia, which operates natural gas pipelines, increased patrols of its facilities immediately after the attacks. "We know how to deal with hurricanes, cold weather, construction, emergencies, but terrorism was something new to us. And we're learning very fast," says Bob Innes, director of communications for the firm based in Chesterfield County.

As tensions build about terrorists striking with chemical or biological weapons, there's been a run on supplies at military surplus stores. "The demand for gas masks has exploded out through the roof," says Freddy Finn, who runs Hull Street Outlet, Inc., a Richmond-area surplus store. He says that his store normally sells 25 to 30 gas masks each year. Now he could sell 70 in one day. "We sold out the day of the attack," he says. Finn is trying to obtain more masks from suppliers looking to Israel, Germany and Belgium for the equipment. He says he's never seen anything like this, "not even the Y2K silliness when people bought all kinds of emergency supplies in case the utilities went off."

Security professionals, likewise, tend to scoff at those who go overboard with survivalism. "We've even been asked by some companies where they could order gas masks for their employees," says Charles Vance, a former Secret Service agent who runs Oakton-based Vance Security. "We try to be the voice of reason and keep the paranoia to a dull roar. People are really overreacting. ... One rumor leads to another and pretty soon I'm getting phone calls from people who've really panicked."

Instead, security experts try to be more realistic and focused on real threats. "I feel very comfortable in Virginia. Utilities are not disrupted and law enforcement is as watchful as ever," says Julien Patterson, a former CIA security officer who is founder, president and CEO of Omniplex World Services in Chantilly. Like all security executives, Patterson has seen demand for his services skyrocket. His firm is being asked to assess physical security of facilities in Virginia, but Patterson says he's most concerned about Virginians who must travel abroad for their work. Indeed, says McGinley of Corporate Risk International, "Northern Virginia has a tremendous number of clients who are international in scope." Statewide, more than 700 firms are affiliated with foreign-based corporations.

To help, firms such as Omniplex offer special training courses (see story page 12) to company employees who may need to protect themselves if they can't run from a threat. Patterson says his firm's courses also train globe-trotting employees on how not to become a target of terrorists, petty thieves or foreign-intelligence services. Some of the instruction is based on simple common sense. "Don't go around a foreign country wearing flashy jewelry or that fake Rolex from Hong Kong. Someone might think it's a real Rolex from Switzerland," he says.

Even in the case of foreign travel, some firms go overboard given today's overheated atmosphere. "Travel anxiety is spilling over to regions and countries not generally associated with terrorist activity," says McGinley. He says his firm received an assignment for executive protection services, something like Secret Service agents for CEOs, from a company whose executive was traveling to Germany. That country may have been a hotbed of terrorist activity 20 years ago, but has since quieted down.

And even though security experts such as Patterson note that now is perhaps the safest moment ever to fly domestic U.S. airlines due to major security upgrades, companies are cutting back on travel. In its place, they're encouraging videoconferencing and telecommuting.

While major airlines suffer, smaller carriers and charter outfits are raking in new money. Dulles-based Atlantic Coast, a large regional carrier, which operates as United Express and Delta Connection, has seen an increase in business by picking up routes that major airlines are dropping. Meanwhile, charters are thriving. Take Martinair, a Richmond-based airplane charter company that owns 16 aircraft. Since the hijacking incidents, Martinair's business has increased. It racked up $482,000 in revenue in September, slightly below the $530,000 it earned for the period last year when times were better. Yet much of this year's earnings came after the Sept. 11 hijackings. "This last one and a half months really saved us," says Alex Kempe, Martinair's president. If anything, business will continue to improve as fears of terrorist retaliation for U.S. air strikes may make business travelers fearful of flying commercial. Vance of Vance Security says that more and more videoconferencing will be in demand as air travel wanes. "This could in the long term curtail a lot of business travel, because companies will get used to doing business differently. This is something that may not be a short-term reaction."

While more companies reassess their emergency planning - or put together an emergency plan for the first time - they may have to consider scenarios that didn't require attention before. A crisis could occur not because a firm is attacked, but because its largest client is.

For a case study, consider what happened on Sept. 11 to SNL Securities LC, a Charlottesville-based publisher of financial databases and newsletters. SNL president Michael Chinn says that his firm suffered disruptions after the attacks even though Charlottesville was miles from the destruction. That's because two of the company's biggest clients are Keefe, Bruyette & Woods (KBW) and Sandler O'Neill, financial advisors that had been located near the top floors of the now-destroyed World Trade Center. Each firm lost about 60 people in the attacks. With the help of SNL's products, they are big players in the research, financing and advising of financial services companies. KBW, for instance, had a major role in the restructuring of Virginia's commercial banking industry. In 1997, it helped Central Fidelity Banks Inc. with its $2.3 billion sale to Wachovia Corp. This year, it advised three other Virginia banks on sales transactions, including the sale of F&M National Corp. to BB&T.

With two big clients chopped up and split among temporary offices in the New York area, SNL had to quickly reroute delivery of data and newsletters to different servers and faxes and sometimes had to resort to hand delivery. "We've been scrambling around to get them the services they need until they can get back downtown," says Chinn.

And, of course, there's a huge impact when top executives are slain in terrorist attacks. Metrocall, founded in 1965, is still reeling from the death of Jacoby, its chief operating officer. No successor has yet been picked. The company is staggering to get past its mourning especially since demand for its pagers has shot upwards since the attacks. "It's an incredible irony of this situation that the systems that Jake worked so hard to put together have held up so well during the emergency," says Scanlon. "The hospitals that responded to the attacks used Jake's pagers when other telecom systems were failing."

At Metrocall, the loss of Jacoby, 43, has taken an intensely personal turn. Executives say he was extremely well liked because of his positive nature, hard work and help on community projects. Soon after the attacks, Metrocall workers put up big banners on the top of their six-story building just south of downtown Alexandria. One banner shows a U.S. flag with "God Bless America." The other banner reads "Jake: We remember you." On Sept. 26 some 600 people turned up at Good Shepherd Catholic Church for a memorial service. And, in the back parking lot behind Metrocall, the No. 3 space is left vacant, marked by bright flowers. J

Reported by Garry Kranz and Paula C. Squires in Richmond, James C. Allen in Charlottesville, Brett Lieberman in Washington and Robert Burke in Fredericksburg.

Return to Virginia Business - November 2001